James Hardie Industries Plc. · NYSE:JHX
James Hardie Industries — Q3 FY2019 Earnings Presentation
57 slides from James Hardie Industries's earnings presentation, Feb 5, 2019
Slide 1: Q3 FY19 Management Presentation
Q3 FY19 MANAGEMENT PRESENTATION 05 February 2019
Slide 2: Cautionary Note on Forward-Looking Statements
James Hardie Q3 FY19 Results CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS This Management Presentation contains forward-looking statements. James Hardie Industries plc (the “Company”) may from time to time make forward-looking statements in its periodic reports filed with or furnished to the Securi
Slide 3: Cautionary Note on Forward-Looking Statements (continued)
James Hardie Q3 FY19 Results CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS (continued) Words such as “believe,” “anticipate,” “plan,” “expect,” “intend,” “target,” “estimate,” “project,” “predict,” “forecast,” “guideline,” “aim,” “will,” “should,” “likely,” “continue,” “may,” “objective,” “outlook”
Slide 4: Note to the Reader
James Hardie Q3 FY19 Results NOTE TO THE READER As of 30 June 2018, the Company changed its reportable operating segments. Previously, the Company reported on four operating segments: (i) North America Fiber Cement, (ii) International Fiber Cement, (iii) Other Businesses, and (iv) Research and Devel
Slide 5: Use of Non-GAAP Financial Information; Australian Equivalent Terminology
James Hardie Q3 FY19 Results USE OF NON-GAAP FINANCIAL INFORMATION; AUSTRALIAN EQUIVALENT TERMINOLOGY This Management Presentation includes financial measures that are not considered a measure of financial performance under generally accepted accounting principles in the United States (US GAAP). The
Slide 6: Agenda
James Hardie Q3 FY19 Results AGENDA • Strategy Dr Jack Truong, CEO • Group Operating Review Dr Jack Truong, CEO • Financial Review Matt Marsh, EVP and CFO • Questions and Answers Page 6
Slide 7: Strategy – Dr Jack Truong, CEO
STRATEGY – DR JACK TRUONG, CEO Contents are confidential and subject to disclosure and insider trading considerations
Slide 8: Global Strategy
James Hardie Q3 FY19 Results GLOBAL STRATEGY Organic Growth Above Market With Strong Returns Be #1 in Every Market We Choose to Participate In EXPAND INTERIOR BUSINESS LEAN MANUFACTURING FULL HARDIE EXTERIOR INNOVATION CULTURE & EMPLOYEE ENGAGEMENT BUILD ON Empowerment & PDCA Continuous THRIVE ON Gl
Slide 9: Long Term Value Creation
James Hardie Q3 FY19 Results LONG TERM VALUE CREATION North America • 35/90 with strong returns (20-25% EBIT margin) Europe • €1 billion business with 20+% EBIT margin APAC • Deliver growth above market with strong returns (20-25% EBIT margin) Page 9
Slide 10: North America: FY20 – FY22
James Hardie Q3 FY19 Results NORTH AMERICA : FY20 – FY22 Strategic Priorities Value Creation 1 Accelerate Exteriors Growth • FY20 PDG of 3-5% • Return to 6% PDG 2 Drive Lean Transformation • EBIT Margin in Top Half of Range Re-establish Interiors as a • Lean Cost Out of ~US$100 million 3 over three
Slide 11: North America: Accelerate Exteriors Growth
James Hardie Q3 FY19 Results NORTH AMERICA : ACCELERATE EXTERIORS GROWTH • New Approach to Execution • Beat Engineered Wood • Win With Color • Full Wrap • Take Share From Vinyl • Win With Color • Replace Wood • Aspyre Source: James Hardie estimate From1 To1 New Base Base Business Erosion New Erosion
Slide 12: North America: Lean Transformation
James Hardie Q3 FY19 Results NORTH AMERICA : LEAN TRANSFORMATION • FROM: World Leader in Fiber Cement Manufacturing TO: World Class Manufacturer • Replicate APAC know-how • Reduction of variability and increased predictability ~US$100 Million • Continuous improvement • Waste reduction (Roll Throughp
Slide 13: NA: Re-establish Interiors as a Growth Driver
James Hardie Q3 FY19 Results NA : RE-ESTABLISH INTERIORS AS A GROWTH DRIVER • New Approach to Execution Innovation Example Waterproof Backer Board launched • Innovation January 2019 • Leverage Global Know-How 1 Passes ANSI 118.10 test for waterproofness Page 13
Slide 14: Europe: FY20 – FY22
James Hardie Q3 FY19 Results EUROPE : FY20 – FY22 Strategic Priorities Value Creation 1 Consistent top line growth of Fermacell • Revenue CAGR1 of 8-12% and Aestuver brand products • Annual EBIT Margin Accretion2 Identify market opportunities for JH 2 • Exit EBIT Margin3 of 14+% Global portfolio FC
Slide 15: Asia Pacific: FY20 – FY22
James Hardie Q3 FY19 Results ASIA PACIFIC : FY20 – FY22 Strategic Priorities Value Creation 1 Solidify growth above market in • Growth Above Market of 3-5% APAC 2 Continue to drive Lean across • EBIT Margin in Top Half of Range region Page 15
Slide 16: Global Strategy
James Hardie Q3 FY19 Results GLOBAL STRATEGY Organic Growth Above Market With Strong Returns Be #1 in Every Market We Choose to Participate In EXPAND INTERIOR BUSINESS LEAN MANUFACTURING FULL HARDIE EXTERIOR INNOVATION CULTURE & EMPLOYEE ENGAGEMENT BUILD ON Empowerment & PDCA Continuous THRIVE ON Gl
Slide 17: Group Operating Review – Dr Jack Truong, CEO
• Xxx • Xxx GROUP OPERATING REVIEW – DR JACK TRUONG, CEO
Slide 18: Q3 FY19 Group Results Overview
James Hardie Q3 FY19 Results Q3 FY19 GROUP RESULTS OVERVIEW VOLUME • North America delivered improved PDG, but below 861.1mmsf +30% our expectations REVENUE • Australia and Philippines continue to deliver strong US$586.2M +18% growth above market ADJUSTED EBIT1 • European segment continues to delive
Slide 19: Q3 FY19 North America Summary
James Hardie Q3 FY19 Results Q3 FY19 NORTH AMERICA SUMMARY VOLUME • Housing market demand was soft in the quarter 532.1mmsf +1% • Continued improvement in exteriors business but PDG remains below our expectations REVENUE US$385.5M +2% • Middle of range EBIT margin despite continued input cost headwi
Slide 20: Q3 FY19 APAC Summary
James Hardie Q3 FY19 Results Q3 FY19 APAC SUMMARY VOLUME • Continue to deliver strong top line results in a 136.1mmsf +11% softening market REVENUE • Continue to enable the way Australia builds A$153.4M +12% • Category and market share gains EBIT • EBIT and EBIT Margin compressed due to input cost A
Slide 21: Q3 FY19 Europe Summary
James Hardie Q3 FY19 Results Q3 FY19 EUROPE SUMMARY Net Sales • Good top line growth; up 8% in local currency 1 US$86.8M +5% • Integration continues to go well and to exceed EBIT Excluding 2 expectations 1 US$8.0M +95% • EBIT Margin Excluding2 in line with expectations, 9.2% for the quarter and 10.3
Slide 22: Financial Review – Matt Marsh, EVP and CFO
FINANCIAL REVIEW – MATT MARSH, EVP AND CFO Page 22
Slide 23: Results – 3rd Quarter FY19
James Hardie Q3 FY19 Results RESULTS – 3rd QUARTER FY19 Net sales increased 18%, US$91.1 million • The acquired Fermacell business in Europe contributed net sales of US$78.6 million • Higher average net sales price and volumes in the North America Fiber Cement segment • Higher volumes in the Asia Pa
Slide 24: Results – Nine Months FY19
James Hardie Q3 FY19 Results RESULTS – NINE MONTHS FY19 Net sales increased 23%, US$353.2 million • The acquired Fermacell business in Europe contributed net sales of US$242.6 million • Higher average net sales price and volumes in North America Fiber Cement segment • Higher volumes in Asia Pacific
Slide 25: North America Fiber Cement Summary
James Hardie Q3 FY19 Results NORTH AMERICA FIBER CEMENT SUMMARY Q3'19 9 Months FY19 Volume • Slightly positive PDG in exteriors, but below our expectations Net Sales US$385.5M US$1,254.9M • Decline in interiors 2% 7% Price Sales Volume 532.1 mmsf 1,714.8 mmsf • Favorably impacted by annual change in
Slide 26: North America Fiber Cement EBIT Margin
James Hardie Q3 FY19 Results NORTH AMERICA FIBER CEMENT Quarterly EBIT and EBIT Margin1 120 30 100 25 80 20 EBIT Margin % EBIT US$M 60 15 40 10 20 5 0 0 FY14 FY15 FY16 FY17 FY18 FY19 EBIT EBIT/Sales YTD EBIT Margin excluding1 % remains within our target range, but down 50 bps to 23.3% compared to pc
Slide 27: North America Input Costs
James Hardie Q3 FY19 Results NORTH AMERICA INPUT COSTS • The price of NBSK pulp up 17% compared to pcp • Electric prices up 6% compared to pcp • Freight market prices up 5% compared to pcp • Cement prices up 3% compared to pcp • Gas prices down 7% compared to pcp The information underlying the table
Slide 28: Asia Pacific Fiber Cement Summary
James Hardie Q3 FY19 Results ASIA PACIFIC FIBER CEMENT SUMMARY Q3'19 9 Months FY19 Volume Net Sales A$153.4M A$468.6M • Strong performance in Australia, New Zealand and Philippines 12% 13% • Gains in category share and further market penetration Sales Volume 136.1 mmsf 416.2 mmsf 11% 12% Foreign Exc
Slide 29: Asia Pacific Fiber Cement (Local Currency)
James Hardie Q3 FY19 Results ASIA PACIFIC FIBER CEMENT (LOCAL CURRENCY) Australia • Market penetration and strong growth • EBIT favorably impacted by higher net sales and favorable plant performance, partially offset by higher pulp and freight costs New Zealand • Favorably impacted by higher sales v
Slide 30: Europe Building Products Summary
James Hardie Q3 FY19 Results EUROPE BUILDING PRODUCTS SUMMARY1 Volume • Increase driven by acquisition of Fermacell Price • Decrease due to product mix • Fiber Gypsum has a lower average net sales price compared to Fiber Cement Net Sales • On a pro-forma basis, net sales increased 5% and 8% for quar
Slide 31: Other Businesses Segment EBIT
James Hardie Q3 FY19 Results OTHER BUSINESSES SEGMENT EBIT Other Businesses (30) • Decision made to exit Windows business (26.5) (25) • Shutdown fiberglass windows assembly facility • Exploring strategic alternatives for fiberglass pultrusion US$ Millions (20) (15) business (10) (7.4) (5.8) (5) (4.7
Slide 32: Product Line Discontinuation Expenses
James Hardie Q3 FY19 Results PRODUCT LINE DISCONTINUATION EXPENSES1 9 Months US$ Millions Q1'19 Q2'19 Q3'19 FY19 North America Fiber Cement segment Discontinuation of MCT - 3.6 - 3.6 Discontinuation of certain ColorPlus color palettes - 1.8 - 1.8 Other Businesses segment Discontinuation of Windows B
Slide 33: Segment EBIT – 3rd Quarter FY19
James Hardie Q3 FY19 Results SEGMENT EBIT – 3rd QUARTER FY19 Research and Development R&D (25) (21.9) (20.5) • On strategy to invest ~2-3% of net sales (20) (18.3) US$ Millions (15) (10) Q3 EBIT (6.2) (7.2) (7.4) 9 Months (5) 0 FY17 FY18 FY19 General Corporate Costs1 General Corporate Costs (50) (39
Slide 34: Income Tax
James Hardie Q3 FY19 Results INCOME TAX Three Months and Nine Months Ended 31 December 14.9% estimated adjusted effective tax rate for 9 Months 9 Months US$ Millions Q3’19 Q3’18 FY19 FY18 the year Operating profit before taxes 82.6 110.1 291.2 277.5 Asbestos adjustments1 (12.4) (46.8) (51.8) (36.2)
Slide 35: Cash Flows
James Hardie Q3 FY19 Results CASH FLOWS1 9 Months 9 Months Change US$ Millions FY19 FY18 (%) Increase in net operating cash flow Net Income 228.0 203.7 12 • Increase in net income adjusted for non-cash items Adjustment for non-cash items 87.8 62.1 41 • Favorable movements in working capital 1 Annual
Slide 36: Capital Expenditures
James Hardie Q3 FY19 Results CAPITAL EXPENDITURES CAPEX Spend YTD CAPEX spend of US$224.7 million increased US$75.9 million compared to pcp 90 80 • North America capacity projects 70 • Continued start-up of Tacoma greenfield expansion 60 • US$ Millions Continued construction of our Prattville facili
Slide 37: Financial Management Framework
James Hardie Q3 FY19 Results FINANCIAL MANAGEMENT FRAMEWORK Strong Financial Management Disciplined Capital Allocation Liquidity and Funding • Strong margins and operating cash flows • Invest in R&D and capacity expansion to • Conservative leveraging of balance sheet support organic growth at a targ
Slide 38: Liquidity Profile at 31 December 2018
James Hardie Q3 FY19 Results LIQUIDITY PROFILE AT 31 DECEMBER 2018 Debt Profile Strong balance sheet Millions • US$118.5 million cash • US$1,188.8 million net debt 3 • US$420.5 million available on revolving credit facility 1 US$250 US$500 US$70 Corporate debt structure €400/ €400/ • US$400 million
Slide 39: FY2019 Guidance
James Hardie Q3 FY19 Results FY2019 GUIDANCE • Management notes the range of analysts’ forecasts for net operating profit excluding asbestos for the year ending 31 March 2019 is between US$297 million and US$311 million • Management expects full year Adjusted net operating profit to be between US$29
Slide 40: Questions
QUESTIONS Contents are confidential and subject to disclosure and insider trading considerations
Slide 41: Appendix
APPENDIX Page 41
Slide 42: North America Fiber Cement Volume
James Hardie Q3 FY19 Results NORTH AMERICA FIBER CEMENT VOLUME 700 15% 600 10% 500 5% 400 Growth % MMSF 0% 300 -5% 200 -10% 100 0 -15% Q4'17 Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 Interiors Exteriors Interior Growth (%Δpcp) Exterior Growth (%Δpcp) • Volume increased 1% and 5% for the quarter and
Slide 43: North America Fiber Cement Average Net Sales Price
James Hardie Q3 FY19 Results NORTH AMERICA FIBER CEMENT 750 Average Net Sales Price 723 698 700 US$ per MSF 666 669 665 650 641 600 FY14 FY15 FY16 FY17 FY18 FY19 • FY19 strategic price increase effective April 2018 • Softer market conditions remain across most • Overall, satisfied with price positio
Slide 44: Translation Impact on Consolidated Results
James Hardie Q3 FY19 Results TRANSLATION IMPACT ON CONSOLIDATED RESULTS 0.80 AUD/USD Exchange Rate 0.70 0.60 31 Dec 16 31 Mar 17 30 Jun 17 30 Sep 17 31 Dec 17 31 Mar 18 30 Jun 18 30 Sep 18 31 Dec 18 1 As reported Q3 FY19 and nine months FY19 figures converted using Q3 FY18 and nine months FY18 avera
Slide 45: Asia Pacific Fiber Cement Results AUD vs USD
James Hardie Q3 FY19 Results ASIA PACIFIC FIBER CEMENT RESULTS AUD vs USD Three Months and Nine Months Ended 31 December Q3'19 9 Months FY19 Results in Results in Impact of Results in Results in Impact of AUD USD FX AUD USD FX Averge net sales price per unit +1% -6% -7% +1% -4% -5% (per msf) Net sal
Slide 46: Europe Building Products Pro Forma
James Hardie Q3 FY19 Results EUROPE BUILDING PRODUCTS PRO FORMA1 Q3'19 9 Months FY19 Net Sales US$86.8M US$269.6M 5% 8% Operating profit before US$8.0M US$27.9M income taxes 95% 45% EBIT margin excluding2 9.2% 10.3% Net sales increased 5% and 8% for the quarter and nine months, respectively, on a pr
Slide 47: Financial Summary
James Hardie Q3 FY19 Results FINANCIAL SUMMARY Three Months and Nine Months Ended 31 December 9 Months 9 Months US$ Millions Q3’19 Q3’18 % Change % Change FY19 FY18 Net Sales North America Fiber Cement $ 385.5 $ 376.8 2 $ 1,254.9 $ 1,168.0 7 Asia Pacific Fiber Cement 110.1 105.3 5 344.5 320.3 8 Euro
Slide 48: Asbestos Claims Data
James Hardie Q3 FY19 Results ASBESTOS CLAIMS DATA Claims Received • Quarter and nine months claims received were 7% and 435 432 433 1% above actuarial estimates, respectively • Quarter and nine months claims received were 18% 154 144 131 higher and flat, respectively, compared to pcp • Claims report
Slide 49: Depreciation and Amortization
James Hardie Q3 FY19 Results DEPRECIATION AND AMORTIZATION US$ Millions Three Months and Nine Months Ended 31 December Q3’19 Q3’18 9 Months FY19 9 Months FY18 Depreciation and amortization North America Fiber Cement $ 20.9 $ 18.8 $ 58.5 $ 54.1 Asia Pacific Fiber Cement 3.4 3.1 9.8 9.4 Europe Buildin
Slide 50: Income Taxes
James Hardie Q3 FY19 Results INCOME TAXES • How ETR is calculated under US GAAP changed in nine months FY19 • Recorded a net deferred tax asset of US$1,160.3 million arising from all previous intragroup transfers, including an internal restructuring which took place in Q4 FY18 to align certain intan
Slide 51: Non-US GAAP Financial Measures and Terms
James Hardie Q3 FY19 Results NON-US GAAP FINANCIAL MEASURES AND TERMS This Management Presentation forms part of a package of information about the company’s results. It should be read in conjunction with the other parts of this package, including the Management’s Analysis of Results, Media Release
Slide 52: Non-US GAAP Financial Measures
James Hardie Q3 FY19 Results NON-US GAAP FINANCIAL MEASURES Financial Measures – US GAAP equivalents This document contains financial statement line item descriptions that are considered to be non-US GAAP, but are consistent with those used by Australian companies. Because the company prepares its C
Slide 53: Non-US GAAP Financial Measures
James Hardie Q3 FY19 Results NON-US GAAP FINANCIAL MEASURES Financial Measures – US GAAP equivalents Adjusted EBIT US$ Millions Three Months and Nine Months Ended 31 December Q3'19 Q3'18 9 Months FY19 9 Months FY18 EBIT $ 97.5 $ 143.9 $ 328.9 $ 325.0 Asbestos: Asbestos adjustments (12.1) (47.0) (51.
Slide 54: Non-US GAAP Financial Measures
James Hardie Q3 FY19 Results NON-US GAAP FINANCIAL MEASURES North America Fiber Cement Segment Adjusted EBIT excluding product line discontinuation expenses Three Months and Nine Months US$ Millions Ended 31 December Q3'19 9 Months FY19 EBIT $ 86.1 $ 287.4 Product line discontinuation expenses - 5.4
Slide 55: Non-US GAAP Financial Measures
James Hardie Q3 FY19 Results NON-US GAAP FINANCIAL MEASURES Adjusted diluted earnings per share Three Months and Nine Months Ended 31 December Q3'19 Q3'18 9 Months FY19 9 Months FY18 Adjusted net operating profit (US$ Millions) $ 65.9 $ 72.9 $ 226.7 $ 210.2 Weighted average common shares outstanding
Slide 56: Non-US GAAP Financial Measures
James Hardie Q3 FY19 Results NON-US GAAP FINANCIAL MEASURES Adjusted EBITDA excluding Asbestos US$ Millions Three Months and Nine Months Ended 31 December Q3'19 Q3'18 9 Months FY19 9 Months FY18 EBIT $ 97.5 $ 143.9 $ 328.9 $ 325.0 Depreciation and amortization 29.8 23.4 88.7 68.6 Adjusted EBITDA $ 1
Slide 57: Q3 FY19 Management Presentation
Q3 FY19 MANAGEMENT PRESENTATION 05 February 2019
James Hardie Industries — Q3 FY2019 Earnings Presentation on 6ix